BluePhantom
Educator (of liberals)
I would probably have done much what Obama did. Where I differ from him I have the benefit of hindsight, of course.
- I would have pushed financial regulation harder.
In what regard? I mean specific to what and how? Using what model or plan?
- I would have attached more strings to the bank bailouts so that banks were actually required to lend money and therefor stimulate the economy.
Let me just play Devil's advocate here for a second. Yes I agree that the problem is not that "there is no money" it's that "the money isn't moving" and the failure of banks to lend is a big part of that. But...when you boil it all down the banks failed because they had no assets. If they start lending and people cannot repay those loans (i.e housing market), they have used their stimulus funds and still have no assets. Yes they may have properties that represent an asset, but that does them no good as those properties are generating no revenue and can't be easily converted into cash.
So how would you deal with that?
I'm afraid I don't have specifics for you (I haven't even formed my presidential exploratory committee ).
Fair enough.
Broadly speaking, there are a few goals I would have:
- Mitigate the moral hazard present when the implicit promise of a bailout encourages a financial entity to take bad risks. This can be done by regulating what kind of risks they can take (i.e., setting limits on leverage) and by enacting policies that limit the size of firms.
- Aggressively pursue enforcement under existing laws by giving more funds and a more aggressive mandate to the SEC.
- Make regulations focus on the types of transactions rather than the type of institution, so that an insurance firm that acted like an investment bank would essentially be regulated like a bank.
These would make it harder to do finance, but I think that's fine. While finance is important, it shouldn't be such a large sector of the economy as it is currently. Much of it serves no social good whatsoever.
Interesting and intriguing. Let me think about that for a while. I'll get back to you.
As to encouraging lending, why give money to the banks at all if they aren't going to lend it? Yes, more lending might be risky, but I think the risk would be acceptable. One reason that banks don't lend is because they expect the economy to stay depressed, and they expect that because no one is lending money. If several banks were forced to lend the economy would (hopefully) pick up and they could end up making money. Even if the lending led to risky loans that lost money I don't think the banks would have much to complain about-- after all the money they would lose would come from the government. I don't think more lending would necessarily involve bailing out underwater residential mortgages. My impression is that there were plenty of potentially good investments in other sectors that had difficulty in securing credit.
Ok. For the most part I agree, but how do you force a bank to lend? If you give them money, it's their money and an argument could be made that forcing them to lend to people who had little chance of repaying those loans is a major part of what got us into this mess to begin with. If you are going to force them to funnel it to the economy through lending why not just charter the Third Bank of the United States and do it directly? I know what my answer to that would be but I am interested in hearing yours.
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